Correlation Between Elanco Animal and Legend Biotech

Can any of the company-specific risk be diversified away by investing in both Elanco Animal and Legend Biotech at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Elanco Animal and Legend Biotech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elanco Animal Health and Legend Biotech Corp, you can compare the effects of market volatilities on Elanco Animal and Legend Biotech and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Elanco Animal with a short position of Legend Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elanco Animal and Legend Biotech.

Diversification Opportunities for Elanco Animal and Legend Biotech

0.67

Correlation Coefficient

Elanco Animal  Legend Biotech

Poor diversification

The 3 months correlation between Elanco and Legend is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Elanco Animal Health and Legend Biotech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legend Biotech Corp and Elanco Animal is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Elanco Animal Health are associated (or correlated) with Legend Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legend Biotech Corp has no effect on the direction of Elanco Animal i.e., Elanco Animal and Legend Biotech go up and down completely randomly.

Pair Corralation between Elanco Animal and Legend Biotech

Given the investment horizon of 90 days Elanco Animal Health is expected to generate 1.13 times more return on investment than Legend Biotech. However, Elanco Animal is 1.13 times more volatile than Legend Biotech Corp. It trades about 0.05 of its potential returns per unit of risk. Legend Biotech Corp is currently generating about -0.03 per unit of risk. If you would invest  1,278  in Elanco Animal Health on August 31, 2024 and sell it today you would earn a total of  35.00  from holding Elanco Animal Health or generate 2.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Elanco Animal Health  vs.  Legend Biotech Corp

Elanco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elanco Animal Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Legend Biotech Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Legend Biotech Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Elanco Animal and Legend Biotech

The main advantage of trading using opposite Elanco Animal and Legend Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elanco Animal position performs unexpectedly, Legend Biotech can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Legend Biotech will offset losses from the drop in Legend Biotech's long position.

The idea behind Elanco Animal Health and Legend Biotech Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.